City Republic: Darling is the man with the plan

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In return it will take preference shares in them, guaranteeing a fixed rate of interest. In theory, therefore, the poor old taxpayer will benefit from any upward movement in the shares as well as receiving above market rate interest.

The idea has been borrowed from US investor Warren Buffet who invested $5bn on such terms in Goldman Sachs a couple of weeks ago.

Initially Abbey, Barclays, Halifax Bank of Scotland, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered Bank will take part in the plan, although we don't know to what extent yet.

Other banks and building societies can apply to be included.

The deal follows a meeting of European finance ministers yesterday so one might assume that similar moves will follow in other European countries, which would be a blessed relief.

Just as importantly, the Government is saying that it will underwrite borrowings the member banks make from other banks (although it's not yet clear if these have to be from banks in the scheme) for a period of up to three years.

If this doesn't get the banks lending again it's hard to see what will.

The Bank of England will also push an extra £200bn of liquidity into the markets, a staggering amount given the Bank's previous parsimony.

Top of the injured list are HBOS (still trying to merge with Lloyds TSB) and RBS.

Shares in both tanked yesterday with HBOS down 42% and RBS down 39%.

HBOS at least has a merger plan of its own. RBS was beset by rumours that it had approached shareholders about raising £7.5bn of government-backed cash while others said that HSBC, the biggest UK bank with the strongest capital ratios, was being lined up as a buyer for RBS.

More generally there were fears that banks going to the Government for help would need to sell shares to it at well below even their current depressed values, forcing the stock even lower.

At this rate shares in the banks will soon be trading at below asset value, meaning that by buying the shares they're giving you money.

But that's only if you think the assets are worth anything like what they're claimed to be worth (in the case of mortgages they probably are not).

Even so, the surprisingly radical government plan will surely put a floor under the bank share prices.

At first sight it looks like the Government could be getting a bargain in return for risking about a tenth of the US government's $700bn exposure, on markedly better terms due to the preference share idea.

But that's assuming firstly that the plan works and secondly that the financial contagion doesn't spread to other institutions, like insurance companies.

Iceland turns to Russia

Why are we concerned about Iceland? Because it owns a large chunk of the British high street through the various investments made by the mysterious holding company Baugur (all or part of House of Fraser, Debenhams, Moss Bros, Oasis, Iceland and poor old Woollies, the list goes on and on).

Quite how one of the UK's biggest industries and its biggest employer ended up in the hands of investors from a tiny country will keep economic historians amused for decades.

It's not quite so funny if you work for those companies though.

The Iceland government is frantically trying to bail out its banking system, nationalizing its second-largest bank Landsbanki yesterday (Tuesday).

The Icelanders are also said to be raising a four billion euro loan from the Russians after western banks turned down the offer.

As the Russians have agreed to pump $37bn of the country's declining resources into its own banks, people are wondering what the attraction of Iceland is.

Which has led to fears that Russia has its eyes on the former US airbase there, vacated in 2006, as part of the package.

Which is all we need on top of a financial crisis.

Panic stations in New York

The Dow Jones index of US big company shares has fallen 13% in the last couple of days leading to further big falls in the Far East earlier today.

As usual it's those bankers causing the trouble with Bank of America raising $10bn yesterday by selling discounted shares and Morgan Stanley telling the markets its deal to raise $9bn from Mitsubishi UFJ was still on, really.

Don't they want any of treasury secretary Hank Paulson's bailout money?

But that's the trouble with these schemes, of course. Investors (and depositors possibly) will assume that the first bank to go cap in hand to Hank is bust and all hell will break loose.

The Federal Reserve has also announced that it will buy short-term debt from banks and other companies in a bid to unfreeze the credit markets. These are loans and bonds that it wouldn't usually touch with a bargepole.

Essentially the Fed is saying it'll buy anything, just to get the system moving again. It's all quite extraordinary.

London falls despite bank rescue plan

Poor Alistair Darling must wonder what he's got to do to receive any thanks.

The Ftse 100 set off firmly southwards this morning following the unveiling of his huge bank rescue plan, dropping nearly 3% in early trading.

But the biggest early faller was Whitbread, which has so far steered a steady course through choppy economic waters, suggesting that the market is now fretting over the recession.

Everyone has known it's coming but maybe they've been too transfixed by the banking problems to pay enough attention.

Whitbread used to be a pub company before it wisely exited the business. Now the big pub operators like Punch are under the cosh as they've built up their estates by huge borrowings just as pubs, because of high prices and the smoking ban, are losing huge numbers of customers.

A big player in the pub market is our old friend Robert Tchenguiz, the man who tried to sell Sainsbury's to the Quataris.

Tchenguiz had built up a 25% stake in pub company Mitchells & Butlers but he was forced to dump this yesterday by his bank Kaupthing (from, guess where, Iceland).

This probably had more to do with the Iceland bank's own problems than the British pub trade but even so it's hardly a gesture of confidence.

But pub companies along with other consumer-facing businesses are in for a rocky ride. All of them will be praying that the Bank of England's Monetary Policy Committee lops half a point at least off interest rates tomorrow.

Stephen Foster is a former news editor of Campaign, former editor of Marketing Week and Evening Standard ad columnist. He is a partner in Editorial Partnership and writes the blog www.editco.net and Politics of the Media for Brand Republic.